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My fixed deposit is maturing shortly. I want to invest in some ELSS mutual fund. To get the benefit of cost averaging, I am thinking of investing the amount in 10 Systematic Investment Plan (SIP) installments. Can you please suggest me some good option where I can park my money, from there I can STP/SSP in an ELSS? What is the tax implication of this process? Also, can we do SSP/STP from one fund house to another fund house in a direct plan? I regularly invest in ELSS direct plan. Does the fund house calculate exit load and tax on the basis of FIFO?
- Mehul
You can invest in a liquid fund and transfer the money to an ELSS fund in a staggered manner via a Systematic Transfer Plan (STP). However, when you transfer the money from one fund to another it is considered as a redemption in one scheme and a fresh purchase in another scheme. Because of this you will be liable to pay short-term capital gains tax on your returns from the liquid scheme. Short-term capital gains, applicable when you hold a non-equity investment for less than three years, are added to the income and taxed as per the applicable tax slab to the investor.
ELSS come with a lock-in period of three years. When you do an SIP or STP in an ELSS fund, every installment has a lock-in period of three years. You cannot redeem your investment before the completion of three years. There is no exit load on redemption in these schemes.
Here is a list of liquid schemes you can consider investing.
This article was originally published on October 26, 2015.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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